Guest Commentary

Alexander W. Koff, Whiteford Taylor Preston LLP

The Wall Street Journal ran an article last month on Beijing’s launch of an antipiracy campaign. Then it published an opinion piece by Tian Lipu, commissioner of China’s IP office. Lipu declares that China is serious about protecting intellectual property rights (IP).  Is it time to believe him?  Not yet, according to Secretary of Commerce Gary Locke.  Only last week, he lamented, on behalf of U.S. businesses, China’s “lax intellectual property protection and enforcement.”

Lipu’s declaration is not new.  In 2006, Lipu told China’s state-run website that more IP protection helps Chinese companies and promotes innovation, and China sent an envoy to the United States –Yang Guohua – to help U.S. businesses address IP problems in China.  But it did not stop IP theft.

Within a year or two, lax IP enforcement had escalated into a trade dispute at the WTO.  Both sides claimed victory in January 2009 when the report issued.  Clearly IP remains a thorn in bilateral relations.  Lipu can claim that IP complaints are “exaggerated.”  And although some may scoff when he characterizes IP enforcement as a “global challenge,” he is right that IP protection requires collective action and a “constructive attitude on the part of all countries.”

The issue, though, is whether it’s time to believe Lipu.  Is China serious about IP protection?  Economists and trade wonks have long opined a correlation between higher wealth and a greater protection for IP rights.  Take Korea;  an OECD member for whom some argue a correlation between their meteoric development and concomitant increase in IP protection.  I am one of them.  It seems Secretary Locke is too.

China seems to be following Korea’s path with regards to connecting IP and growth.  China is quickly ascending economically, and so-called “second tier” cities in China see more bustle and construction than many “first tier” cities in the U.S.  Plus they are out seeking foreign direct investment.  Actively.  Consider what is happening in the city of Shenzhen.

Shenzhen makes me think of New York, Boston, or Philadelphia in the 1900s.  It is bustling and most residents are transplants from elsewhere.  You can take Hong Kong’s subway to the border crossing, and it dubs itself “China’s City of Innovation and Entrepreneurship.”  Part of the Greater Pearl River Delta, which churns out a third of China’s manufacturing, Shenzhen was a small fishing village fifty years ago.

Today Shenzhen boasts world competitive telecom, banking, and other companies, among others.  And U.S. investors are taking note, like Warren Buffet, who dropped hundreds of millions into Chinese automaker BYD.  Reportedly that investment has already earned a $1 billion profit.  BYD wants to be China’s largest automaker by 2015 and the world’s largest by 2025.  It did not exist sixteen years ago.  BYD’s founder, Wang Chuan-Fu, invented a better way to make a battery and parlayed that into a dynasty dominating the rechargeable battery market. Sights are now set on electric cars.

Shenzhen is also hosting a breakfast in New Jersey to introduce the city to pharmaceutical companies. The goal: attract IP-rich companies to China.  Clearly effective IP protection is critical to such targets.  China is making great strides and has come a long way since the Great Leap Forward some 50 years ago.  In 2008 and 2009, patent filings by residents increased by double digits in China.  They dropped here.

China is getting better about IP.  But it is not there yet.  As China’s Long March to prosperity continues, expect its protection of IP to increase.  But that glimmer at the end of the tunnel is not the bright light of effective IP protection.  Another 10 year or more trudge lay ahead to reach that grail.